2021 (4) TMI 463 - HC - Income Tax

Computation of deduction under section 10A - Whether travelling expenditure incurred in foreign currency is to be reduced from the total turnover also for the purpose of computation of deduction? - HELD THAT - The above question of law is covered by the decision of this Court in M/s. SRA Systems Ltd., Chennai 2021 (3) TMI 977 - MADRAS HIGH COURT wherein held covered by the decision of the Hon'ble Supreme Court reported in Commissioner of Income-tax, Central III Vs. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT .- Questions of Law are decided against the Revenue and in favour of the assessee

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding Assessment Year 2005-2006 - Deduction under section 10A of the Income Tax Act for travelling expenditure incurred in foreign currency.

Issue 1: Deduction under section 10A for travelling expenditure in foreign currency
The Revenue challenged the order of the Income Tax Appellate Tribunal regarding the deduction under section 10A of the Income Tax Act for travelling expenditure incurred in foreign currency. The substantial question of law was whether such expenditure should be reduced from the total turnover for the purpose of computing the deduction under section 10A. The appellant argued that the question was covered by previous decisions of the court. The respondent, relying on various judgments, contended that the deduction should be allowed from the total turnover to avoid an illogical and unjust result. The court referred to Supreme Court and Division Bench decisions to support the position that expenses incurred in foreign exchange for providing services outside should be excluded from the total turnover to ensure the formula's workability and avoid absurd results. The court, following the precedent, decided the issue against the Revenue and in favor of the assessee, leading to the dismissal of the appeal.

Issue 2: Application of Section 10A for multiple Assessment Years
The court considered the application of Section 10A for multiple Assessment Years based on various judgments. It discussed a case where the assessee claimed deduction under Section 10B but faced disallowance by the Assessing Officer. The court analyzed the conditions under Section 10B and concluded that the assessee was entitled to the deduction under Section 10A. The court referred to previous judgments confirming the applicability of certain clauses of Section 10A, leading to the dismissal of the appeal. The court highlighted that the deduction under Section 10A should be made while computing the gross total income of the eligible undertaking and not at the stage of computing the total income under Chapter VI of the Act. The court emphasized that the method used by the Revenue to compute income was against the law as declared by the Supreme Court. Therefore, the court held that the decision of the Income Tax Appellate Tribunal was not legally sound and decided the substantial question of law in accordance with the precedent, resulting in the dismissal of the appeal.

In conclusion, the High Court of Madras, in a judgment delivered by Justice M. Duraiswamy and Justice T.V. Thamilselvi, addressed the challenges raised by the Revenue regarding the deduction under section 10A for travelling expenditure in foreign currency. The court relied on previous judgments to establish that such expenses should be excluded from the total turnover to ensure a logical and just computation of deductions. Additionally, the court analyzed the application of Section 10A for multiple Assessment Years, emphasizing the correct method of computing income as per Supreme Court decisions. The court's decisions were in line with the precedent, leading to the dismissal of the appeal in favor of the assessee.